US President Bill Clinton has described the prospect of reconciliation and eventual reunification of North and South Korea as an encouraging development for the entire world.

He said the outcome of the summit between the North Korean leader, Kim Jong-il, and his southern counterpart President Kim Dae-jung was just a first step, but nevertheless a move in the right direction.

The sun is rising at last for national reunification, reconciliation and peace

Kim Dae-jung

Mr Clinton's comments came as the two leaders embarked on their final day of talks in Pyongyang marked by an historic agreement to reduce tension on the peninsula.

Reports said the South Korean president would attend a farewell luncheon hosted by Kim Jong-Il before flying back to Seoul.

Earlier plans were for Kim Dae-jung to return from the three-day summit in Pyongyang through the heavily fortified border and the truce village at Panmunjom.

Landmark deal

The agreement signed in Pyongyang contains a commitment for both sides to work towards reunification of the Korean peninsular.

It also includes measures to reunite families separated by the war 50 years ago, and new investment by the South in the North's crippled economy.

The deal was announced to an accompaniment of smiles, laughter and champagne toasts.

The South Korean president said the landmark summit had been a success.

Points of agreement

Reducing tension in peninsula

Social and economic co-operation

Reuniting separated families

Eventual reunification

"The sun is rising at last for national reunification, reconciliation and peace," he said.

"Unification is the ultimate goal for this era. If both sides join forces, then Korea could become a first-class nation."

In another breakthrough agreed at the summit, Kim Jung-il is to make a return visit to South Korea

But the deal makes no mention of two major issues: South Korea's concern over the North's nuclear missile programmes, and the North's demand for the withdrawal of 37,000 US troops stationed in the South.

Lee Hee-ho, South Korea's first lady, met North Korean children at a kindergarten

The head of North Korea's Supreme People's Assembly, Kim Young-nam, welcomed the agreement.

"Although we had walked different roads for long, it was very meaningful that we could confirm that we can go along together," he said.

Officials said family reunions are due to go ahead on about 15 August, when both countries mark Korea's liberation from Japanese occupation in World War II.

South Korean press reports said the summit in the south could also take place ahead of the celebrations.

In addition, a pledge by the leaders to work towards freeing long-term political prisoners, could also see the first releases in August.

'Reclusive'

The agreement is more detailed than those reached by lower-ranking officials in 1972 and 1991 - which called for reconciliation and reunification but gave way to renewed hostilities.

North Korean leader Kim Jong-il joked before Wednesday's meeting that the media portrayed him as a recluse.

"I have been to China, Indonesia and made many other unofficial visits abroad. But people still think I am a recluse," he said with a smile.

Thousands of Pyongyang residents lined the route of the motorcade

"And now they say that Mr President's visit has freed me from my hermit's life," he added, to laughter.

The leaders discussed a wide variety of measures to try to improve relations, including opening road and rail links across the heavily-armed border for the first time in more than 50 years.

They also want to set up a telephone hotline so that discussions between the leaders can continue.

Government ministers also discussed the idea of closer sporting ties, and suggested marching under the same "unification" banner at the opening and closing ceremonies of the Olympic Games in Sydney, according to reporters covering the summit.